Marc Faber, aka Dr. Doom, sticks to stock-swoon call

MADRID (MarketWatch)—They call him Dr. Doom, and he likes that label just fine. It also fits with the renowned Swiss investor’s unwavering belief that U.S. stock markets are headed for a 30% decline sooner or later.

Marc Faber, the editor and publisher of the “The Gloom, Boom & Doom Report”, is among a handful of doomsters who have been predicting a correction for stock markets. And with the S&P 500 index
SPX, -0.88%
up more than 6% this year, grinding its way through year five of a bull market, those calls are hardly being ignored.

Faber’s call is among the most dramatic and he tends makes the headlines when he opens his mouth. He has been expecting a big pullback since 2012 and recently predicted to CNBC a rout like 1987, when the Dow industrials dropped 22.6% in a single day. Not everyone agrees with him, of course. Jim Paulson, chief investment strategist at Wells Capital Management, last week predicted a pullback for this year, but also a multiyear run for this bull market. Goldman Sachs raised its S&P target to 2,050 from 1,900 on Monday.

Among the stocks that Faber does find attractive are commodity-related issues. In his July newsletter he highlighted gold and silver-mining shares as among the very few sectors that are “extremely depressed and offer an opportunity for potentially very high capital gains.” Oil stocks got a nod on the view the Fed and other central banks will speed up money printing if the economy or markets begin to weaken, also good for gold.

Read on for MarketWatch’s interview with Faber, conducted July 8, in which he expands on that bearish stock call and also talks about warnings signs from retail, and why he wouldn’t waste his time talking to Federal Reserve Chairwoman Janet Yellen.

MarketWatch: What are your valuation thoughts with the Dow industrials
DJIA, -1.11%
having recently hit 17,000 and the S&P 500
SPX, -0.88%
not far off from 2,000?

Faber: There are far more intelligent people than I who have valuation models...and according to their models, the higher the market is, the lower future returns. Over the next 10 years, returns from assets will be disappointing for most investors.

MarketWatch: What about this 30% stock drop? When is it coming?

Faber: Since 2012, I have been expecting a correction that hasn’t happened, but it has happened in individual stocks, and it has happened in emerging economies. A 30% [drop] would not surprise me, but the financial media doesn’t believe it can happen. When the S&P was at 666 on March 6, 2009, they didn’t believe the S&P would go to 2,000 either.

The market is very overbought. The rise this year has been accompanied by fewer and fewer stocks making new highs. GE
GE, -1.23%
GM
GM, -0.48%
IBM
IBM, -1.33%
Wal-Mart
WMT, -0.34%
are no longer participating in the advance. [but] if stocks went down 30% I’d be interested again.

MarketWatch: What is retail telling us now?

Faber: Wal-Mart [shares] peaked out in February and since then, the stock has been moving sideways. As as an economic indicator, Wal-Mart is a very good say symptom of what is happening to the consumer and if their sales are flat or down, or Coca-Cola’s
KO, +0.10%
in the U.S., it tells you something about the consumer.

MarketWatch: You recently stated [to CNBC] that the global economy isn’t strengthening, but weakening. Where are the trouble spots?

Faber: When I travel and look around economies, I don’t see the global economy strengthening, I see it weakening. In Asia, we don’t have a recession per se, it is just economic growth has slowed down meaningfully or there is no growth at all .

We are now in the fifth year of an economic recovery which began in June 2009 in the U.S. and we’re more than in the fifth year of a bull market that began on March 6, 2009. This is a very mature economic recovery...it would seem to me that the monetary policies that central banks pursue are negative for economic growth, but they are positive for asset price increases. As a result of asset price increases, lots of goods have become unaffordable for the typical household.

MarketWatch: What’s the number-one thing people aren’t paying attention to right now?

Faber: Everyone thinks alike in the sense they say central banks will continue to print money and as a result asset prices will go up. When everyone thinks alike, no one is thinking clearly. We’ve seen cases where interest rates remain low or went down and markets still fell, like in Japan or the U.S. after March 2000. In 2001, they slashed the fed funds rate from 6.5% to 1%, yet the Nasdaq
COMP, -0.94%
still fell, the housing market still fell...the fact that you have low interest rates doesn’t mean low asset prices cannot go down.

MarketWatch: If you met Fed Chairwoman Yellen in an elevator what would you say to her?

Faber: It’s pointless to talk to Fed members about economics because they are academics who believe in money printing. Some of them believe they didn’t print enough, and so with these kinds of people, it is like running to the pope. What do you want to tell them? It’s pointless to spend time with these people trying to convince them that their monetary policies have been very destructive. They bailed out Mexico in 1994, and there was an EM bubble until 1997. They then bailed out LTCM (Long-Term Capital Management), which gave a signal to leverage up...then they had the Nasdaq bubble, then they printed again and had the housing bubble. David Hume and Irving Fisher said bubbles are very destructive to the majority of market participants. They lose money, the minority makes money. The Fed doesn’t see it that way so it is pointless to talk to these people.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.